The home buying process can be intimidating and confusing, which is why the most important thing you can do is work with an agent who is experienced in the process and is willing to educate buyers and sellers along the way. Sit down with your agent and ask them to explain the process thoroughly, as there can be several contracts, addendums, amendments and contingencies that take place throughout the process. There can be numerous contingencies that may be provided in a contract. A contingency is a stipulation that must be removed for the sale to move forward. It is important to understand the contract and that all the contingencies will have timelines. Below are the most common:
If a buyer plans on obtaining a mortgage to secure a property, this contingency states that the buyer will do everything in their power to obtain the financing they have promised in the contract. While it is not necessary for buyers to have a pre-approval before submitting a purchase agreement to get the attention of a seller, it is not a guarantee of financing. While the pre-approval has initially secured the buyer’s offer, the underwriter will have the final say and dig a little deeper into a buyer’s finances. If the buyer cannot obtain their promised financing they have the right to go outside of that and find another lender that will finance the property or the buyer has the right to terminate the agreement without penalty (Earnest Money).
Most buyers will reserve the right to receive an inspection of the property through their chosen inspection company and any required inspection to obtain their financing for FHA, VA or USDA loans. Misconception of this contingency is the seller will need to repair anything that is found by said inspections, including cosmetic defects. This contingency is to protect the buyer from purchasing a home that may have substantial defects, including but not limited to foundation issues, issues that would be hazardous to the health of an individual or detrimental to the property value, which is why it is important to pick an experienced agent. If a defect of this nature is found, the buyer must give the seller the opportunity to remedy the defect, if the seller is unwilling or simply cannot, then the buyer may terminate the agreement with no penalty.
This contingency protects the lender and buyer. The purpose of the contingency is so the lender is not lending more money than the home is worth and the buyer is not purchasing a home for a price that is over value. There are a few possible remedies if this were to happen.
First Right contingency-
This contingency is for a buyer in need to sell their current home (home A) before being able to obtain financing on a new home (home B). This addendum gives the buyer a certain amount of time to get their current home under contract or sold prior to removing the contingency. If the new home receives another offer that the seller would like to entertain, the buyer has a certain amount of time (usually 72 hours or less) to remove their contingency and move forward with the purchase. If the buyer is not able to get home A under contract in the agreed amount of time the seller may remove the first right contingency and accept any offers without stipulation.
If you are in the market of buying or selling a home, be sure to understand the contingencies in your purchase agreement. It is most important to work with an agent you trust, who can educate their clients in the process.
Guest Post by Valerie Vaughn
Valerie prides her business on building relationships. She provides the highest level of education and trust that can be expected all the way through the buying or selling process. Her expertise in the process assists clients in smooth transaction. Partnered with IHR she provides cutting edge technology to market your home through every avenue possible and to find your dream home. She has assisted in the sale and purchase of many homes from starter to luxury. Valerie will work hard to represent you.